Exxon Mobil making multi-billion dollar offshore oil deal in Ghana

Exxon Mobil is finally putting its large cash position to use with the acquisition of Kosmos Energy’s stake in the Jubilee oil field offshore Ghana.

Exxon is close to finalizing the deal, the WSJ reported Tuesday. Analysts have previously valued Kosmos’ oil field holdings in Ghana at $3 billion to $6 billion. More recent reports have pegged the value near $4 billion.

Kosmos holds about a 23.5 percent interest in the Jubilee field, home of one of the largest oil finds in the past decade in West Africa. Anadarko Petroleum, the UK’s Tullow Oil and Ghana National Petroleum Corp. also are partners in the field.

So what does it mean when a conservative super major — the world’s largest publicly traded company — makes its heftiest acquisition in a decade?

For one, its confirms the value of Ghana’s offshore oil blocks and the relative low risk of investing in the country. Ghana is considered stable compared to other West African countries, like Nigeria, where other larger oil companies, including Exxon, have focused their exploration efforts.

A growing number of companies and countries — such as China’s pursuit of Kosmos and Addax Petroleum– have become increasingly interested in oil assets in West Africa. And why not? Kosmos has estimated the Jubilee field could potenitally hold recoverable oil and gas reserves between 650 million and 2 billion barrels of oil equivalent.

Exxon is one of the largest producers in Africa and has operations in Angola, Chad, Cameroon, Equatorial Guinea and Nigeria. Company also is exploring for oil in Libya, Madagascar, the Republic of Congo and the Nigeria-Sao Tome and Principe Joint Development Zone.

But Exxon had held back on jumping on Ghana bandwagon — until now.

The acquisition also hints at a return to price stability within the market. Exxon has held back from acquisitions and instead has used its large cash position to buy back shares and capital projects. Gross share purchases through the first half of 2009 were $13.1 billion, reducing shares outstanding by 3.4 percent, according to the company’s second-quarter earnings statement.

The company, which is sitting on about $15.6 billion in cash (as of July), has changed its traditional stock repurchase, dividends and capital expenditure strategy. Exxon probably won’t start throwing its cash around will nilly. But it signals an uptick in its typically tepid acquisition engine.

Other winners in the deal? Kosmos’ private equity backers, The Blackstone Group and Warburg Pincus, of course. The two private equity firms invested $300 million in 2004 and then another $500 million last yearin the Kosmos venture. If Kosmos sells for $4 billion — as analysts and reports suggest — that would be a five-fold return on their investment.

Exxon Mobil is finally putting its large cash position to use with the acquisition of Kosmos Energy’s stake in the Jubilee oil field offshore Ghana. Exxon is close to finalizing the deal, the WSJ has reported. Analysts have previously valued Kosmos’ oil field holdings in Ghana at $3 billion to $6 billion. More recent reports have pegged the value near $4 billion.

Kosmos holds about a 23.5 percent interest in the Jubilee field, home of one of the largest oil finds in the past decade in West Africa. Anadarko Petroleum, the UK’s Tullow Oil and Ghana National Petroleum Corp. also are partners in the field.

So what does it mean when a conservative super major — the world’s largest publicly traded company — makes its heftiest acquisition in a decade?

For one, its confirms the value of Ghana’s offshore oil blocks and the relative low risk of investing in the country. Ghana is considered stable compared to other West African countries, like Nigeria, where other larger oil companies, including Exxon, have focused their exploration efforts.

A growing number of companies and countries — such as China’s pursuit of Kosmos and Addax Petroleum– have become increasingly interested in oil assets in West Africa. And why not? Kosmos has estimated the Jubilee field could potenitally hold recoverable oil and gas reserves between 650 million and 2 billion barrels of oil equivalent.

Exxon is one of the largest producers in Africa and has operations in Angola, Chad, Cameroon, Equatorial Guinea and Nigeria. Company also is exploring for oil in Libya, Madagascar, the Republic of Congo and the Nigeria-Sao Tome and Principe Joint Development Zone. But Exxon had held back on jumping on Ghana bandwagon — until now.

The acquisition also hints at a return to price stability within the market. Exxon has held back from acquisitions and instead has used its large cash position to buy back shares and capital projects. Gross share purchases through the first half of 2009 were $13.1 billion, reducing shares outstanding by 3.4 percent, according to the company’s second-quarter earnings statement.

The company, which is sitting on about $15.6 billion in cash (as of July), has changed its traditional stock repurchase, dividends and capital expenditure strategy. Exxon probably won’t start throwing its cash around will nilly. But it signals an uptick in its typically tepid acquisition engine.

Other winners in the deal? Kosmos’ private equity backers, The Blackstone Group and Warburg Pincus, of course. The two private equity firms invested $300 million in 2004 and then another $500 million last yearin the Kosmos venture. If Kosmos sells for $4 billion — as analysts and reports suggest — that would be a five-fold return on their investment.

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USAfrica related Insight:

OIL in NIGERIA: Liquid Gold or Petro-Dollars Curse? By Chido Nwangwu.Special & Exclusive commentary for USAfrica The Newspaper, Houston, The Black Business Journal and USAfricaonline.com : Nigeria is the world’s sixth-largest oil producer, its petroleum industry industry lays the golden egg as well as sticks out like a sore thumb, the fertile ground for mega-corruption and abuse of Nigeria’s resources by a few. The battle over who controls the oil money is the key to understanding Nigeria’s business, politics and future. Hence, I must state the political duelling and ethnic jostlings seek the privatization (not capitalism, in this context, but raw control and abuse) of State power and control rather than a competition for responsibility and performance. The consequence is partly reflected in the

underlying reason(s) for the wreckage and mangled landscape and tortured lives and serrated psyches in Jesse, the village of Apawor and others which occured on October 17, 1998. The inferno which raged Sunday October 18, 1998, remains a sad metaphor and reminder of the sad state of affirs in Nigeria’s oil and gas business and the lot of Nigeria’s poor. The fire left decimated farmland, burnt livestock made bonfire of human beings, men, women and children, in the most macabre mix of crude oil and fire. Crude oil which was first explored in commercial quantity in 1958 by Shell BP, in the tropical, serene environment of Owaza, the Igbo-speaking area of the riverine part of south eastern Nigeria, has left gulleys of degradation, dangerously exposed pipelines, abandoned farmlands, worse, it accelerated the corrosion of the collective values and interests Nigerians. I toured Owaza on a news documentary assignment in the early 1980s as a staff of the Nigerian Television Authority, NTA. The Ogoni and other riverine communities have fared almost worse. All those, and more, have combined with wonderful announcements of billion dollar contracts and deals with the multinational corporations and their Nigerian collectors and agents to raise and dash, every passing year, the tortured hopes of the same poor, dispirited folks on whose lands the oil and gas sit. Is there any wonder why they, like me sometime wonder whether oil is Nigeria’s liquid gold or just a petro-dollar curse?

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